A LevelAccountingCambridge (CIE)Revision NotesFinancial AccountingPreparation of Financial Statements for PartnershipsRetirement of an Existing Partner

Retirement of an Existing Partner (Cambridge (CIE) A Level Accounting): Revision Note

Exam code: 9706

Written by: Dan Finlay

Reviewed by: Lucy Kirkham

Updated on 18 March 2026

Retirement of an existing partner

How do I update partners' capital accounts when an existing partner retires?

STEP 1
Calculate the net profit or loss on revaluation for each of the existing partners using the old ratio
- Debit the capital accounts if it is a net loss
- Credit the capital accounts if it is a net profit
STEP 2
Calculate the share of the raised goodwill for each of the existing partners (including the retiring partner) using the old ratio
- Credit the capital accounts
STEP 3
Calculate the share of the eliminated goodwill for each of the current partners (excluding the retired partner) using the new ratio
- Debit the capital accounts

STEP 4
Balance the capital accounts to calculate how much the retiring partner is owed
- Transfer the balance on the retiring partner's current account to their capital account
  - Credit the capital account if the current account has a credit balance
  - Debit the capital account if the current account has a debit balance
- Debit the capital account with the value of any assets that the retiring partner is taking with them
- Credit the capital account with the value of any outstanding loans made by the retiring partner

How is the retiring partner's account settled?

The partner is entitled to the balance on their capital account when they retire
The remaining partners can pay the retiring partner immediately
- Debit the retiring partner's capital account
- Credit the bank account
The retiring partner might agree to defer the payment and treat it like a loan
- Debit the retiring partner's capital account
- Credit a loan account with the retiring partner's name
If the retiring partner defers the payment, then they might receive interest on the loan in the future

Examiner Tips and Tricks

Paper 3 can test the retirement of an existing partner and admission of a new partner in the same question. You just need to combine the steps to answer these.

This table summarises who is involved at each step. Remember, the remaining partners will be affected by all the steps.

Step	Partner that is retiring	Partner that is joining
Revaluation	✓	✕
Raising the goodwill	✓	✕
Eliminating the goodwill	✕	✓
Balancing the accounts	✓	✓

Worked Example

Lawrence, Mike and Nikita were in partnership for many years sharing profits and losses in the ratio 3:3:2 respectively.

The partnership's statement of financial position at 31 December 2025 was as follows:

	$	$
Assets
Non-current assets		175 000
Current assets
Inventory	28 000
Trade receivables	25 000
Bank	7 000	60 000
Total assets		235 000
Capital and liabilities
Capital
Capital account - Lawrence	80 000
- Mike	70 000
- Nikita	50 000	200 000

Current account - Lawrence	12 000
- Mike	8 000
- Nikita	(14 000)	6 000

Current liabilities
Trade payables		29 000
Total capital and liabilities		235 000

The partners have agreed the following to take effect on 1 January 2026 on the retirement of Nikita.

Nikita will take a motor vehicle at the net book value of $3 000. The remaining non-current assets are to be valued at $191 500.
Inventory with a cost price of $10 000 is to be written down to a net realisable value of $6 500.
Goodwill is to be valued at $32 000 and will not remain in the books of account.
Lawrence and Mike will continue in partnership, sharing profits and losses in the ratio 3:2 respectively.
Nikita will transfer $15 000 to a loan account to be repaid in full in 2030. No loan interest will be charged on this amount.
The remaining balance owed to Nikita will be paid from the business bank account.

Prepare the revaluation account and the partners' capital accounts to show the retirement of Nikita.

Answer:

Prepare the revaluation account

Find the increase in the non-current assets

$191 500 - ($175 000 - $3 000) = $19 500

Find the decrease in inventory

$10 000 - $6 500 = $3 500

The balancing figure is the net profit or loss on revaluation

$19 500 - $3 500 = $16 000

Split the amount using the old profit-sharing ratio

Lawrence: $\frac{3}{8} \times $ 16 000 = $ 6 000$

Mike: $\frac{3}{8} \times $ 16 000 = $ 6 000$

Nikita: $\frac{2}{8} \times $ 16 000 = $ 4 000$

	$		$
Decrease in inventory	3 500	Increase in non-current assets	19 500
Capital - Lawrence (Profit on revaluation)	6000
Capital - Mike (Profit on revaluation)	6 000
Capital - Nikita (Profit on revaluation)	4 000
	19 500		19 500

Calculate the share of goodwill using the old ratio

These will be credited to the capital accounts

Lawrence: $\frac{3}{8} \times $ 32 000 = $ 12 000$

Mike: $\frac{3}{8} \times $ 32 000 = $ 12 000$

Nikita: $\frac{2}{8} \times $ 32 000 = $ 8 000$

Calculate the share of goodwill using the new ratio

These will be debited to the capital accounts

Lawrence: $\frac{3}{5} \times $ 32 000 = $ 19 200$

Mike: $\frac{2}{5} \times $ 32 000 = $ 12 800$

Prepare the capital accounts

Debit each capital account with the share of the profit on revaluation
Debit Nikita's capital account with the motor vehicle
Debit Nikita's capital account with the current account balance
Debit Nikita's capital account with the loan amount
The balance figure for Nikita's account is the bank value

Capital Accounts

	Lawrence $	Mike $	Nikita $		Lawrence $	Mike $	Nikita $
Goodwill	19 200	12 800		Balance b/d	80 000	70 000	50 000
Vehicle			3 000	Revaluation	6 000	6 000	4 000
Loan			15 000	Goodwill	12 000	12 000	8 000
Current account			14 000
Bank			30 000
Balance c/d	78 800	75 200
	98 000	88 000	62 000		98 000	88 000	62 000
				Balance b/d	78 800	75 200

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